Educational Material

maninjapan · May 5, 2009

Just read the following quote on Bloomberg RE the yield curve.

The U.S. Treasury yield curve has widened to 2.22 percentage points from 1.25 percentage points in December. It averaged less than zero in 2006 as traders correctly anticipated that the economy would enter a recession, causing inflation, which erodes the value of fixed-rate securities, to slow.

Which 2 points does 'The U.S. Treasury yield curve has widened to 2.22 percentage points from 1.25 percentage points in December.' refer to exactly? is it the 3 month and 30 year points?

Martinghoul · May 5, 2009

Looks like they're talking about 2s10s, i.e. yield on current 10s vs the current 2s.

maninjapan · May 5, 2009

ah, ok. As they reffered to the treasuries right?

Thanks for that.

Martinghoul · May 5, 2009

Yes, yield of the current 2y on-the-run UST (0 7/8 Apr 11s) vs yield of the current 10y on-the-run UST (2 3/4 Feb 19s).

maninjapan · May 5, 2009

sorry, on the run and the brackets, being the cheapest to deliver?

Martinghoul · May 5, 2009

Quote from maninjapan:

sorry, on the run and the brackets, being the cheapest to deliver?

Nah, the actual bond is in brackets, that's all... Nothing to do with CTD.

maninjapan · May 6, 2009

so when you are looking at the yield curve 'On the Run' is being used to calculate the curve, not 'CTD'?

Martinghoul · May 6, 2009

Yes, you want to look at the on-the-runs, rather than the CTDs, because the CTDs are often shorter tenors (for example, the 10y note CTD at the moment is a 7y bond)

maninjapan · May 29, 2009

I have another question in regards to the spread ratios. Ive read that they are based on DVO1. Is there anywhere to get this easily? Also, if you have a longer term spread on and the ratio changes, does this mean you adjust the ratio of your active trade, or stick with your original ratio?

Thanks!

Martinghoul · May 29, 2009

I don't know of a place to get that easily, other than Bloomberg. Maybe someone else does (there might be some info on the CME site, but I don't know). Otherwise, you're just going to have to read some books and put a spreadsheet together, I'm afraid...

As to your other question, the futures' CTDs don't change all that often. When they do, most people would, in fact, adjust their positions, because without the adjustment you will be running some outright risk (which, I assume, you don't wanna do, if you have a spread position on). Ultimately, it's all up to you, really...